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What You Need to Know About Capital Gains Tax in Canada

A capital gain (or loss) is the gain (or loss) resulting from the sale of a capital asset or property. According the Canada Revenue Agency (CRA) a capital property is “depreciable property, and any property which, if sold, would result in a capital gain or a capital loss.” In general capital property is nearly anything that you could buy and sell as an investment or to earn income, not just physical properties.

However, the assets of a business (such as business inventory) are not considered capital property.

Some examples of capital property include:

Cottages and residences other than your primary residence

Stocks, bonds, or units of a mutual fund trust

Equipment, land, and buildings used in a business

If you sell these assets and investments for more than you paid for them, you are required to pay CRA capital gains taxes.

What Counts as Capital Gains in Canada

While capital gains are paid on “capital property,” this does not mean that you only pay capital gains tax Canada on physical property. You will be required to pay tax on the sale of any capital asset, including money made from the sale or stocks or bonds.

The sale of your primary residence is not subject to CRA capital gains taxes. However, you are required to report the sale of any residence on your income taxes, even your primary residence. If a property was your primary residence for the entire time you owned it, you can claim the full primary residence deduction. If the property was not your primary residence the entire time, then you may have to report all or some of the profits of the sale as a capital gain.

Capital Gains Taxes & Your Primary Residence

However, since real estate in many areas of the country has increased in value quite a lot over the last few years, some people may try to claim a property as their primary residence while they renovate the home and then sell it for a profit. They may then try to claim another property as a primary residence to avoid capital gains taxes.

Note that you are only able to designate one property as your primary residence at a time, and that you or your family must have “ordinarily inhabited” the property for it to be exempt of capital gains tax Canada.

The CRA does not list a specific time that you have to live in a home for it to be “ordinarily inhabited,” but it does take several factors into account when determining if a property should rightfully be considered your primary residence. These factors include your intent at the time of purchase, how long it has been between the purchase and sale of the property, how many purchases and sales you have made, how many primary residence designations you have made, and other details.

How Much are CRA Capital Gains Taxes?

When you sell a capital property for more than you paid for it, this is called a capital gain. You must pay taxes on 50% of this gain at your marginal tax rate. For instance, if you buy a property as an investment and then sell this property, making $100,000 in profit, you will be required to pay tax on $50,000.

Farber Tax Solutions can help you successfully deal with CRA problems. We utilize the experience of our tax experts to:

1| Offer a comprehensive solution that is focused on achieving the most favourable possible outcome for your tax issue;

2| Communicate with the CRA on your behalf and navigate the entire CRA dispute process; and

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Farber Tax Solutions is a tax dispute resolution firm serving clients across Canada. Our team of ex-CRA professionals at Farber Tax Solutions provide effective tax solutions and the tax lawyers from our affiliate: Farber Tax Law, ensure that you get high-quality litigation services and legal advice. This ensures that you get holistic and robust tax solutions. We have built our reputation on outstanding client service and are committed to helping you succeed in your tax matter.

*Farber Tax Law is an independent law firm affiliated with Farber Tax Solutions in Ontario, Canada **Past results are not necessarily indicative of future results and the amount recovered will vary according to the facts in individual cases.